Taxpayers typically are entitled to a tax deduction for charitable donations made throughout the tax year. A taxpayer usually will keep receipts or records of donations made to various charitable organizations to aid in estimating the amount of any deduction which may be taken upon the filing of a tax return.
Currently, during the preparation of an income tax return, a taxpayer gathers the receipts or records of the charitable donations made throughout the year and estimates how much an item is worth depending on its condition when donated. It is very difficult for most taxpayers to estimate the value of a donated item, especially if the taxpayer does not have access to a resource that estimates the value of such items. The taxpayer typically underestimates the value of the items which have been donated, thus underestimating the amount of the charitable deduction that can be claimed.
In addition, taxpayers have less incentive for making charitable donations because they do not realize the potential tax savings in making such a donation. Some taxpayers believe that they would not get a significant amount of tax savings by donating items to a charitable organization. Therefore, taxpayers either donate items and do not claim a deduction in their taxes or discard items that could be given away to charity because they feel such a deduction would be insubstantial and not worth the time and effort necessary to track such donations.
Further, taxpayers oftentimes are discouraged from making charitable donations because they find it difficult to monitor and summarize receipts from such donations. When preparing a tax return, a taxpayer typically manually tallies the total monetary amount of donations made during the tax year. Taxpayers may be discouraged from donating items to charitable organizations because they do not want to get involved in this time consuming and tedious process.
Currently, taxpayers can use a book or software to determine the valuation of charitably donated items. However, these methods are only good for a current tax year, the taxpayer has no way to track the taxpayer's charitable donations over a period of multiple years. In addition, the taxpayer cannot track charitable donations until tax deductible valuations have been established for the year.
Even if the taxpayer were to use software to determine the valuation of charitably donated items, the taxpayer has to manually enter charitable donation information into a tax return. As larger numbers of people begin using tax preparation applications, they may want to have their charitable donation information directly inserted into the tax preparation application.
Accordingly, there remains a need in the bookkeeping, accounting and tax preparation fields for a system and method for providing a value to a corresponding item donated to a charitable organization, based upon a valuation methodology such as the condition of the item when donated. In addition, there remains a need for software that provides a system and method which encourages taxpayers to make charitable donations. Further, there remains a need for software that makes it easier to monitor and summarize tax deductions for charitable donations.